Investors who tried to buy Norwalk Furniture sue

NORWALK Charles Rowe Jr. wants his money back. The president of IRG Capital Group tri
Cory Frolik
May 24, 2010

 

NORWALK

Charles Rowe Jr. wants his money back.

The president of IRG Capital Group tried to buy Norwalk Furniture, but that deal went bust in early September after production at the company's various plants shut down. Rowe blamed Comerica Bank for yanking the company's funding and complicating business negotiations.

The two private investors -- IRG Capital Group and Blackbird Capital Partners -- then pulled out of discussions to buy the company, which dissolved soon after.

Now Rowe is trying to recoup his losses.

In a lawsuit filed Friday in Huron County Common Pleas Court, NFC Acquisition, the company formed to buy Norwalk Furniture's assets, is suing Comerica claiming fraud, misconduct and tortuous interference with a contract.

The Ohio Secretary of State's office lists Rowe on the registration form for NFC Acquisition, a foreign limited liability company.

The legal action against the bank has three counts. The first count claims there was fraud by Comerica that entitles NFC Acquisition to a full refund of its $1 million investment, an amount stipulated in a subordinated participating agreement.

NFC Acquisition claims Comerica helped siphon money from the company to various insiders -- different affiliates -- in turn ruining the financial viability of the company.

"Upon execution of the Participation Agreement, NFC was permitted access to the financial records of Norwalk and, within a few days, learned of the wrongful diversion of (Norwalk Furniture's) funds to the Insider Entities. As part of this discovery, NFC learned of the existence of various bank accounts that were utilized by Norwalk to collect receivables owing to Norwalk containing the wrongfully-diverted funds in an amount believed to be in excess of ($1.2 million)," the lawsuit states.

Instead of making sure that any money that came into Norwalk Furniture paid off the debts of the company, NFC Acquisition claims company insiders funneled money to themselves -- "a crime that should have been reported by Comerica" to federal officials, the suit claims.

The second count uses the same factual grounds to make another legal argument -- that Comerica's involvement in the alleged scheme to get money out of Norwalk and into the insider entities should makes Comerica's status as a secured creditor take a back seat to NFC Acquisition's financial claims.

"Under principles of equitable subordination, this Court has the power to divest Comerica of its Security Interest and place Comerica in a position where any claim it holds is subordinate to the claims of all other creditors of Norwalk where Comerica has engaged in conduct that has caused injury to Norwalk's creditors," the suit states.

The last count centers on intentional interference with NFC's contract. The claim by NFC Acquisition is that while Comerica knew it was interested in the assets of Norwalk Furniture, the bank also knew the insiders were "wrongly diverting" funds, damaging the investors' ability to get the benefit of the contract.

The three counts contained in the lawsuit all trace back to that $1 million participation investment. The suit seeks repayment of that money, as well as lawyer's fees and punitive damages.

Requests for comment sent to Jim Gerken, chairman of Norwalk Furniture, and Charles Rowe Jr. were not immediately returned.